"With more people in employment and a rise in vacancies, it is clear the private sector is still creating jobs.

"However, we are not complacent. With more people in the labour market we know that competition for those jobs is tough and we will continue to make it our priority to find people work."

Paul Kenny, general secretary of the GMB union, said: "Austerity means 2.67 million people are not working.

"As it is clear that austerity and deflation as a policy is not working, it is both surprising and shocking that there are so few demands from Tory backbenches, from the CBI, from the City and from the Liberal and Labour parties that the policy be abandoned in favour of sure fire ways of getting people back to work.

"So widespread is support for this failed orthodoxy that some Labour groups on councils, at the behest of the leadership, are supporting deflationary pay policies for their own staff. It is just not possible to deflate your way to growth."

The 48,000 increase in unemployment was the smallest quarterly rise since last summer.

Economic inactivity, which includes students, long-term sick, people who have retired early or those who have given up looking for work, fell by 78,000 to 9.29 million, 23 per cent of the working age population.

Average pay increased by 2 per cent in the year to December, unchanged from the previous month, although in the public sector it fell by 0.2 per cent to 1.7 per cent, the lowest figure since records began in 2001.

There were 1.39 million days lost through industrial disputes in the year to last December, the highest figure since 2002.

Around 164,000 workers were made redundant or took voluntary redundancy in the final quarter of last year, up by 17,000 from the three months to September.

The number of job vacancies increased by 11,000 in recent months to 476,000, although this was 21,000 down on a year ago.

The Government said the figures showed that despite continuing economic challenges, the labour market was stabilising.

John Salt, of recruitment firm totaljobs.com, said: "Britons are facing their worst employment prospects since the recession began. The UK's negative Q4 GDP data released last month confirmed the lacklustre growth in the UK economy and this, alongside a backdrop of diminishing demand, has led to nervous employers adapting their 'wait and see' approach to the labour market to start cutting their workforces instead.

"All the more apparent is the widening gap between North and South, with depressed high streets and businesses across the North West and North East struggling to cope with the lack of demand and obstacles to securing finance hindering the North from investing in its workforces."